The Singapore-Kuala Lumpur High-speed Rail Project And Its Economic Implications

A decision has been made on the mega Singapore-Kuala Lumpur high-speed rail project, which is expected to increase connectivity between Singapore and Malaysia’s capital city of Kuala Lumpur by slashing travel time to 90 minutes. After weeks of review, Dr Mahathir, the newly elected Prime Minister of Malaysia confirmed on 28 May 2018 its death sentence to the project.

Stake Is High for Scrapping the Project

To abort the Singapore-Kuala Lumpur high-speed rail project, Malaysia government will have to pay to Singapore government up to RM500 million in compensation.

According to the Transport Minister of Singapore, Mr Khaw Boon Wan, several contracts had been awarded for the high-speed rail project with the most recent contract worth of SGD24.6 million awarded to Aecon Singapore to conduct an advanced engineering study. Tenders have also been called for the design and construction of tunnels and associated facilities for Singapore’s end of the high-speed railway, with construction slated to commence next year. Mr Khaw said Singapore government would reserve its right to seek compensation in accordance with the contract terms.

Benefits of the High-speed Rail Project

The high-speed rail project was proposed by the Malaysia government in 2013. Convinced of the mutual benefits, Singapore government willingly accepted the proposal and the two countries signed a bilateral agreement in 2016 to see it to fruition. The 335km-long railway project is expected to shorten travel time between Singapore and Kuala Lumpur from the current four hours by car to merely 90 minutes by train upon its scheduled completion in 2026.

Based on studies by the former government led by Najib Tun Razak, the high-speed rail project is expected to contribute a massive RM209 billion to Malaysia’s GDP. The benefits go beyond train ticket sales. The project will also lead to increased property value in adjacent areas and creation of 442,000 job opportunities. Malaysia’s tourism industry is expected to receive a boost as well.

By applying the economics concepts you have learned in economics tuition from your economics tutor, list out the benefits of having a rail linkway between the two cities. With assistance from your economics tutor in your economics tuition class, do a cost and benefit analysis for both Malaysia and Singapore.

Although the above are estimates based on studies by the previous Najib’s administration, the benefits of this project to Malaysia are self-evident. So why is Mahathir’s decision to cancel the project?

Cancellation Due to the High Debt Level

There has been confusion surrounding the estimated cost of the Singapore-Kuala Lumpur high-speed rail project, with the reported figures ranging from RM50 billion to RM72 billion. The newest price tag given by Malaysia’s new Finance Minister Lim Guan Eng is RM110 billion, far higher than the figure published by the previous administration. Similarly, the newly elected government also revealed discrepancy in its debt level, with its revised debt figure surging to a total of RM1.1 trillion. Given its mounting debt level, the new government has to give any multi-billion projects like the high-speed rail a second thought.

Another project, the RM55 billion East Coast Rail Link is subject to the same fate. The East Coast Rail Link is expected to cost RM92 billion after taking into consideration the interest payable.

Given the revised public debt level and the project cost, has Mahathir’s administration made the right decision to cancel the Singapore-Kuala Lumpur high-speed rail project? Consult your economics tutor in economics tuition for an answer. Sign up for economics tuition with a reputable economics tutor today to learn more about public debt and how public debt is financed.

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